Commercial Law Update - Setting aside a statutory demand: when is a dispute “genuine”?

In the recent case of United Petroleum Pty Ltd v McGrathNicol Advisory Partnership [2017] VSC 239, United Petroleum relied on the genuine dispute ground in an unsuccessful attempt to have a statutory demand set aside.

Interestingly, the Court held that one of the reasons why the dispute relied upon by United Petroleum was not “genuine” was because United Petroleum did not identify the quantum said to be in dispute. While the court did not base its decision solely on this reason, the case is nevertheless (arguably) authority for the proposition that if a company does not specify the amount in dispute then its reliance on the genuine dispute ground (to set aside a statutory demand) will not succeed.

The statutory demand process

When a company does not pay a debt, and provided the debt is due and payable, one of the options available to a creditor of the company is to issue a statutory demand pursuant to section 459E of the Corporations Act (the Act). If a statutory demand is made, the company served with the demand has 21 days to pay the debt (or otherwise secure the amount of the debt to the creditor’s satisfaction) or to apply to the Court pursuant to section 459G of the Act to have the demand set aside.

There are four bases upon which the (alleged) debtor company can have the statutory demand set aside (as set out in sections 459H and 459J). These are if the Court is satisfied that:

(a) there is a genuine dispute between the company and the respondent about the existence or amount of the debt to which the demand relates (459H(1)(a));

(b) the company has an offsetting claim (459H(1)(b));

(c) there is a defect in the demand, and substantial injustice will be caused unless the demand is set aside (459J(1)(a)); or

(d) there is some other reason why the demand should be set aside (459J(1)(b)).

The most common ground relied on by debtor companies to have a statutory demand set aside is the genuine dispute ground. This was the ground relied on by United Petroleum in this case.

United Petroleum’s genuine dispute

In this case McGrathNicol claimed in its statutory demand that United Petroleum owed it $62,845.57 (including interest of $1,660.81) for services it provided to United Petroleum. United Petroleum sought to set aside the demand on the basis that there was a genuine dispute about the debt. In particular, United Petroleum claimed that the invoices rendered to it were excessive and unreasonable.

However, Associate Justice Efthim found that United Petroleum “had no intention to pay the amount due which can be inferred from its conduct”. After setting out the evidence, including the correspondence between the parties, his Honour stated:

“At no stage did [United Petroleum] raise the dispute prior to receiving the statutory demand. The fact that it was not raised does not necessarily mean that there can be no dispute. What is clear is that [United Petroleum] at no stage agreed to pay. It sought discounts and made an offer to settle. The fact that payment was not made demonstrates dissatisfaction with [McGrathNicol’s] conduct but does not demonstrate a genuine dispute. There is no doubt that work has been done and that there is a debt due. [United Petroleum] has not stated what amount is in dispute. Where there is an offsetting claim a plaintiff must advise the quantum of the claim. It has not provided any evidence as to what the quantum of the alleged overcharging and overservicing is.” [Emphasis added]

This case did not involve an offsetting claim. However, what the Court said, in effect, was that because United Petroleum did not specify how much of the $62,845.57 debt it disputed, its failure to do so (among other things) meant that it did not satisfy the Court that there was a genuine dispute about the debt as claimed.

Accordingly, this case is arguably authority for the proposition that a party who claims to genuinely dispute the debt that underlies a statutory demand must identify the amount that is in dispute. Failure to do so may be fatal to the claim of genuine dispute as a ground to set aside a statutory demand.

Note that the author acted for McGrathNicol in this case. Thanks to Felicity Bentley for reviewing an earlier draft of this note (any errors are the author’s).